Report forecasts 3.5% growth in 2015

The economy is expected to show stronger growth of 3.5 per cent next year after stumbling at an estimated 1 per cent this year - but that is still less than its sustainable rate of 4 per cent, according to Grant Thornton.

The brighter outlook reflects the stability of the economy through a functional government after the May 22 coup, and peaceful streets in Bangkok.

While this has been welcomed by business leaders, there are significant domestic and external factors that continue to weigh heavily on the economy, the professional-services firm said yesterday in its international business report for the third quarter.

Ian Pascoe, managing partner of the company, said increased spending on infrastructure projects by the government was a major driver of the economy. However, the fragile global economy is still worrisome, particularly the recession in Japan, as it will have an impact on Thailand's export expansion.

Although tourism is expected to continue increasing, income from the industry will not be as much as in the past, as most visitors will be budget tourists rather than big spenders because of the global economic slowdown.

Foreign direct investment will also stay flat because foreign investors are tending to look at other Asean countries besides Thailand. Some prospective newcomers will worry about laws and regulations, as the military regime has plans to amend the Foreign Business Act. Those new investors may want to see a clearer picture to be sure that the amendments will not affect them negatively.

Because of many concerns, consumption will remain low, while household debt is expected to rise further.People are still worried about the military's programme to rewrite the country's constitution and the stated plan to hold an election next year. If the government can convince doubters that Thailand will have a fair and transparent election, it will be a positive sign to boost confidence next year.

The Grant Thornton study also found that more than 10 years of political volatility had blunted Thailand's competitive edge. Growth in global gross domestic product has plunged in the past decade, as has Thailand's.

Normally, Thailand's GDP needs to rise by 4 per cent each year to keep up with population growth, but household debt will further depress that.

However, increased stability should boost household confidence and see consumption pick up by 3.2 per cent in 2015 and 4.2 per cent in 2016, the study forecasts.

Rising energy costs are a problem across the region and for Thai businesses. This highlights business concern around the potential removal of massive fuel subsidies that the government has put in place to keep a lid on inflation.

More than half of business leaders also cite a lack of skilled workers as a handicap. The ageing of the population and low technology development and low productivity, but higher wages, are also hindering economic growth in the long run, the study found.